Growth through Visibility: Sustainability Insights for Investors

The sustainable investing market has seen unprecedented growth in recent years with a tenfold increase in annual cash flows into sustainable funds from the period 2018-2022. Despite a modest slowdown over the past year, analysis from Morgan Stanley shows that sustainable equity funds continue to post strong gains, with their 10.9% median returns outperforming the 8% growth seen by traditional equity funds.

The search for sustainable growth opportunities comes with ongoing challenges, however, notably the complexity of clearly defining sustainability in investment terms. Green taxonomies, like those implemented in the European Union, offer a solution to these challenges by setting clear criteria for what constitutes a sustainable activity or asset. This not only aids in aligning portfolios with sustainable goals but also serves as a defence against greenwashing accusations, ensuring that investments have a verifiable positive impact.

In the context of investment management, sustainability insights, like those offered by Pimlico Strategy & Insights, also play a pivotal role at various stages of the investment cycle. These insights are not only crucial for staying on top of policy changes and ensuring compliance with regulatory requirements and sustainability criteria, but also for strategic decision-making, risk assessment, and identifying new opportunities.

Pre-Engagement and Due Diligence

For many clients, the journey towards sustainable investment begins at the pre-engagement phase, where investors assess potential opportunities through the lens of sustainability. This initial stage involves scrutinising a company's sustainability practices and performance, laying the groundwork for informed engagement and ultimately an investment decision.

Due diligence extends this scrutiny, delving deeper into the ESG risks and compliance, ensuring that investments align with both financial objectives and sustainability criteria. Comprehensive evaluation at this stage mitigates risks and identifies opportunities for value creation through sustainability.

Engagement, Negotiation, and Strategy Review

Sustainability insights for clients are also used to inform engagement and negotiation, allowing investors to integrate ESG considerations into investment terms. This engagement is critical for setting sustainability targets and ensuring that investment agreements reflect shared values and objectives.

Furthermore, the strategic review process benefits immensely from insights into the overall sustainability profile of companies and benchmarking across industries. Semi-annual or annual strategy refreshes incorporate these insights to adapt investment strategies in response to emerging sustainability trends and market developments, ensuring alignment with broader strategic goals and sustainability commitments.

Portfolio Management and Compliance

Within portfolio management, ongoing monitoring of sustainability performance is crucial. It enables investors to make informed decisions about asset allocation, informed by sustainability performance and strategic fit. Moreover, compliance and reporting have taken on increased significance, as regulators and stakeholders demand greater transparency and accountability in sustainability practices.

By benchmarking sustainability practices against industry standards, investors can identify leaders and laggards, informing investment decisions. Furthermore, sustainability insights are instrumental in spotting emerging trends and innovations that offer new investment opportunities, particularly in sectors poised for growth due to sustainability-driven demand.

Sustainability Insights for Impact

The strategic integration of sustainability insights into investment management offers a multitude of benefits. It enhances risk management by identifying and mitigating ESG-related risks that could impact financial performance. It uncovers opportunities for innovation and growth in emerging sectors, driving forward-thinking investment strategies that contribute to a sustainable future.

At Pimlico, we are committed to helping clients achieve long-term success and resilience through the integration of sustainability insights for greater impact. This is not just strategic — it's now a market imperative. With better solutions, investment firms are navigating the complexities of the market to find growth through sustainability.

At Pimlico Strategy & Insights, we make sustainability move FASTER.

Contact us for a consultation today.